Thursday 23 June 2011 18.06 EDT
First published on Thursday 23 June 2011 18.06 EDT

It is one of the curious features of British politics that government ministers on a worthy-but-dull trip to a faraway place often try to get a few juicy headlines by sounding off about an issue that's big back home but nowhere near their agenda. So it appears to be with Nick Clegg this week, because the deputy prime minister has used a round of trade negotiations in Rio de Janeiro to brief the press not about tariffs or a memorandum of understanding, but the British banking system. Mr Clegg certainly made a satisfactory splash with his proposal to give away shares in the nationalised Royal Bank of Scotland and Lloyds to every adult. But the idea is a terrible one, and terribly confused.

Before coming on to the whys and wherefores, however, it is worth making one note about the politics. Mr Clegg has made his intervention just days after George Osborne made it clear that he had his own plans for the nationalised banks. Speaking at Mansion House last week, the chancellor made clear that he wanted to sell the state-owned Northern Rock to any willing bidder. That approach is diametrically opposed to Mr Clegg's vision of freely scattering bank shares like confetti on to the heads of the British public. (See also Vince Cable's growling this week at company directors on what he called "actually outrageous" salaries, a phrase unlikely ever to be used by his old rival Mr Osborne). The Liberal Democrat leader is obviously signalling that he is independent from his senior coalition partners.

Which would be all to the good, were Mr Clegg's position at all attractive. But it is not. In doling out stock willy-nilly, the Lib Dem is failing either to raise much-needed cash for the Treasury by selling these state shares, or to use the government's stake in these high-street titans to reform the banking industry. To miss one or other of these objectives may be inevitable, to miss both is surely hapless. Mr Clegg describes his freebie as "psychologically immensely important" – a pretty flimsy pretext to forgo tens of billions of pounds through a sale. He has also learned nothing from the Russian privatisations of the 90s, in which citizens flogged their free shares for a few roubles to a nascent oligarchy.

A better solution would be to hold on to these banks and use them to foster a sustainable recovery. RBS and Lloyds should be directed to lend to strategically important regions and industries that will otherwise be credit-starved. Difficult? Yes. Complicated? Undoubtedly. But it is time for ministers to think much bigger about Britain's banking system, rather than grab easy headlines. Let us hope Mr Clegg devotes the rest of his week to fostering trade with Brazil – the ostensible purpose of his trip.